Nervous time at Countrywide

In its headline, the London Telegraph puts it indelicately, but accurately: "Bankruptcy scare for Countrywide, biggest US home lender, as mortgage securities shunned." Shares of the mortgage giant plunged 13 percent today after a Merrill Lynch analyst laid out a scenario under which the company could be forced into bankruptcy. In case you're wondering, such an event would be... well, you really don't want to go there. That’s why the market got all hot and bothered at even the mention of such a possibility. The big risk is that lenders might require more collateral or repayments and Countrywide might get squeezed. The reason it's even coming up is that investors have been passing on most all mortgage-related paper because of rising defaults and uncertainty over the value of mortgage-backed securities. From the LAT:

Until recently, Calabasas-based Countrywide, which makes one of every seven home loans in the U.S., had been seen as a likely beneficiary of the turmoil upending the sub-prime home loan market. Scores of the lender's smaller rivals have gone out of business since last year as defaults have risen and Wall Street has cut off funding for sub-prime mortgages. Countrywide has hired some former employees of those firms and at the end of July the company had 61,500 employees, up 9.8% from a year earlier. Early this month Countrywide sought to assure investors that it had more than enough financing. But last week the company said in a regulatory filing that the "unprecedented disruptions" in the credit markets could hurt its earnings and financial condition. The filing also cautioned that "the situation is rapidly evolving and the potential impact on the company is unknown."